The Corrao Company reports the following information:
Sales for the year ended December 31, 2012 $106,950
Gross profit for the year ended December 31, 2012 $45,150
Net income for the year ended December 31, 2012 $7,300
Total Current Assets, December 31, 2012 $18,700
Total Current Liabilities, December 31, 2012 $7,600
Total Assets, December 31, 2012 $88,400
Total Liabilities, December 31, 2012 $20,850
Total common shares outstanding, December 31, 2012 1,000
Market price per share, December 31, 2012 $75.00
Dividends per share, for the year ended December 31, 2012 $5.00
What is the debt-to-equity ratio at December 31, 2012?
A) 15.7%
B) 30.9%
C) 43.1%
D) 75.7%
Direct labor cost is the primary cost driver of support costs for two products. Product
One has direct labor costs of $8.50 per unit and Product Two has direct labor costs of
$130 per unit. The support costs assigned to each product is the direct labor cost times
five. What is the support cost assigned to Product One and Product Two?
Product One Product Two
A) $8.50 $130
B) $5.00 $76.47
C) $42.50 $650
D) $5.00 $26.00
Sandler Company has identified the following activities related to indirect production
costs:
Activity Activity Costs Cost Drivers
Machine Setup $180,000 1,500 setup hours
Materials Handling $50,000 12,500 pounds of materials
Electric Power $20,000 20,000 kilowatt hours
Sandler Company has obtained the following data concerning two products:
Product A Product B
Number of units produced 4,000 20,000
Direct materials cost $20,000 $25,000
Direct labor cost $12,000 $20,000
Number of setup hours 100 120
Pounds of materials used 500 1,500
Kilowatt-hours 1,000 2,000
Using activity-based costing, what amount of electric power cost is assigned to Product
A and Product B?
Product A Product B
A) $1,000 $2,000
B) $3,333 $16,667
C) $5,000 $15,000
D) $6,667 $13,333
The variable overhead efficiency variance depends on whether the quantity of the cost
driver used is more or less than ________.
A) the standard amount of output for the expected amount of output
B) the quantity allowed for the expected amount of output
C) the quantity allowed for the static budget amount of output
D) the standard quantity allowed for the actual output
The ending retained earnings balance of Brothers Company is $700,000. During the
current year, net income is $370,000 and dividends declared are $150,000. What is the
beginning balance in retained earnings?
A) $480,000
B) $580,000
C) $800,000
D) $1,060,000
Which of the following budgets identifies the overall goals and objectives of the
organization?
A) capital budget
B) cash budget
C) master budget
D) strategic plan
Unsecured debt holders are creditors who have ________.
A) a specific claim against particular assets
B) a specific claim against fixed assets only
C) a general claim against fixed assets only
D) a general claim against total assets
Which of the following outputs would NOT use a process costing system?
A) flour
B) glass
C) toothpaste
D) building
There is(are) ________ goal(s) of transfer pricing systems. There is no universally
________ transfer price.
A) multiple; maximum
B) one; maximum
C) multiple; optimal
D) one; optimal
External users of financial reports need ________ measures of inventory and cost of
goods sold. Internal users of financial reports need ________ cost information about
products.
A) strategic; operational
B) operational; strategic
C) aggregate; detailed
D) detailed; aggregate
Accepting a project with a ________ NPV makes the firm worse off financially because
the cost of the investment exceeds the ________.
A) positive; present value of future benefits
B) negative; present value of future cash flows
C) negative; present value of present cash flows
D) positive; present value of present cash flows
A(n) ________ cost is any cost that management cannot reasonably affect within a
given time span.
A) controllable
B) quality
C) uncontrollable
D) opportunity
A company uses job-order costing. At the end of the year, applied factory overhead
costs were $10,000 and actual factory overhead costs were $12,000. The company uses
the immediate write-off method to dispose of variances. Which of the following journal
entries is necessary under the immediate write-off method?
A) Factory Department Overhead Control $2,000
Cost of Goods Sold $2,000
B) Factory Department Overhead Control $2,000
Finished Goods Inventory $2,000
C) Cost of Goods Sold $2,000
Factory Department Overhead Applied $2,000
D) Cost of Goods Sold $2,000
Factory Department Overhead Control $2,000
The higher the risk of an investment project, the ________ for the project.
A) lower the minimum desired rate of return
B) higher the minimum desired rate of return
C) lower the expected rate of return
D) higher the expected rate of return
Economic resources that a company owns and expects to provide future benefits are
called ________.
A) stockholders’ equity
B) assets
C) liabilities
D) retained earnings
Which of the following is NOT a type of quality costs?
A) prevention
B) appraisal
C) internal failure
D) development
In determining product costs, variable costing and absorption costing differ in the
treatment of ________.
A) variable overhead costs
B) variable selling costs
C) fixed selling costs
D) fixed overhead costs
Selected items from the financial statements for Lorna Company are listed below:
Paid in capital, December 31, 2014 $100,000
Retained earnings, December 31, 2014 $75,000
Common stock dividends declared in 2014 $75,000
Net income for the year ended December 31, 2014 $100,000
Lorna Company has 5,000 common shares outstanding during the year. What are the
earnings per share for the year ended December 31, 2014?
A) $12.00
B) $15.00
C) $20.00
D) $25.00
An example of central corporate support costs includes ________.
A) tax planning department
B) human resources department
C) maintenance department
D) company cafeteria
Barber Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300
Direct labor $4,100
Variable factory overhead $3,700
Fixed factory overhead $5,600
Variable selling and administrative costs $2,400
Fixed selling and administrative costs $3,200
What is the average target markup percentage for setting prices as a percentage of total
variable costs?
A) 45%
B) 57%
C) 82%
D) none of the above
Assume a company uses process costing and has several processing departments. When
goods are transferred from Department X to Department Y, the journal entry requires a
Debit to ________ and a Credit to ________.
A) Work-In-Process Inventory—Department X; Work-In-Process Inventory—
Department Y
B) Finished Goods Inventory; Work-In-Process Inventory—Department Y
C) Cost of Goods Sold; Finished Goods Inventory
D) Work-In-Process Inventory—Department Y; Work-In-Process Inventory—
Department X
The following information pertains to Garcia Company:
Total assets $50,000
Net operating profit after taxes $10,000
Total current liabilities $10,000
Total expenses $60,000
Total liabilities $15,000
Total revenues $80,000
Invested capital is defined as total assets minus current liabilities. The after-tax cost of
capital is 20%. What is the residual income?
A) $2,000
B) $4,000
C) $12,000
D) $20,000
The variable cost of Part X is $50 per unit and the full cost of the part is $80 per unit.
The part is produced in Portugal and transferred to a plant in the United States. Portugal
has a 10% income tax rate. The United States has a 50% income tax rate and an import
duty equal to 10% of the price of the item. Part X can be transferred at full cost or
variable cost. Assume Part X is transferred at full cost. By using full cost instead of
variable cost for the transfer price, the income tax effect per unit in Portugal is
________.
A) a decrease in tax by $3 per unit
B) an increase in tax by $3 per unit
C) a decrease in tax by $15 per unit
D) an increase in tax by $15 per unit
Marvel Company is considering the acquisition of two machines.
Machine A Machine B
Initial investment $200,000 $200,000
Annual operating revenues (end of year) $100,000 $160,000
Annual expenses (end of year) $25,000 $85,000
Terminal salvage value $10,000 $20,000
Estimated useful life 5 years 5 years
Minimum desired rate of return 14% 14%
Assume straight-line depreciation. Ignore income taxes. The present value of an
ordinary annuity of one at 14% and 5 periods is 3.4331. The present value of one at
14% and 5 periods is 0.5194.
Required:
A) Calculate the net present value for both machines.
B) Assume there are enough funds to purchase both machines. Should both machines be
purchased?
C) Assume there are funds to purchase only one machine. Which machine should be
purchased?
In imperfect competition, firms should produce and sell units until the ________ equals
the ________.
A) average revenue; marginal cost
B) marginal revenue; average revenue
C) average revenue; average cost
D) marginal revenue; marginal cost
Atkinson Company wishes to earn after-tax net income of $18,000. Total fixed costs are
$84,000 and the contribution margin is $6.00 per unit. Atkinson’s tax rate is 40%. The
number of units that must be sold to earn the targeted net income is ________.
A) 14,000
B) 17,000
C) 19,000
D) 21,500
The wages expense of Florida Corporation was $45,000 as per its income statement.
Beginning wages payable was $6,000. Ending wages payable was $3,000. The cash
paid to employees was ________.
A) $42,000
B) $45,000
C) $48,000
D) $50,000
For management purposes, managers trace and allocate the costs from value-chain
functions to ________.
A) products only
B) customers only
C) products and customers
D) none of the above
Assume the following facts:
Sales price $180 per unit
Variable cost $100 per unit
Total fixed costs $39,600
Targeted net income $52,800
How many units must be sold to achieve the targeted net income?
A) 513
B) 629
C) 963
D) 1,155
Brown Company manufactures tape dispensers. The Assembly Department reported the
follow data for the past month:
Units started and completed 70,000
Units started and not complete 10,000
Units in beginning inventory 0
Direct materials costs $560,000
Conversion costs $240,000
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 60 percent complete with respect to conversion costs. The unit
cost of direct materials is ________.
A) $1.67
B) $3.32
C) $6.86
D) $7.00
Rainbow Company acquired 100 percent of the outstanding common stock of Ribbon
Company. At the date of acquisition, no goodwill was involved and the book value of
the assets and liabilities of Ribbon Company equal their fair values. Immediately after
the acquisition, an elimination entry is prepared in order to prepare consolidated
financial statements. Which of the following accounts are affected by the elimination
entry?
A) Investment in Ribbon Company and Investment Revenue
B) Stockholders’ Equity of Ribbon Company and Investment Revenue
C) Fixed Assets of Ribbon Company and Investment Revenue
D) Investment in Ribbon Company and Stockholders’ Equity of Ribbon Company
Which of the following statements about performance reports and variances is FALSE?
A) They are most effective when managers use them positively to encourage employees
to improve performance.
B) When they are used negatively, employees will resist and undermine these
techniques.
C) These tools should be used to find weaknesses and deficiencies in employees’
performance.
D) These tools should be used constructively to influence behavior.
A cost-volume-profit graph has a line for ________ and a line for ________.
A) revenues; variable costs only
B) revenues; fixed costs only
C) revenues; total costs
D) net profit; net loss
Barber Company has the following information available for the most current year:
Paid-in capital, January 1, 2014 $475,000
Retained earnings, January 1, 2014 $100,000
Total revenues in 2014 $870,000
Total expenses in 2014 $550,000
Dividend declared in 2014 $70,000
Dividend paid in 2014 $0
Investments by owners in 2014 $10,000
What was the total amount of Retained Earnings for Barber Company at December 31,
2014?
A) $30,000
B) $250,000
C) $350,000
D) $420,000
Garcia Company manufactures phones in a two-department process that includes
Assembly and Finishing. Information about the Assembly Department follows:
Direct materials added $310,000
Direct labor 460,000
Factory overhead 230,000
Total costs to account for $1,000,000
There was no beginning inventory and 80,000 units were started in the Assembly
Department. By the end of the month, 67,200 units were completed and transferred to
the Finishing Department and 12,800 units were still in process. The partially complete
units were 100 percent complete with regard to direct materials but 80 percent complete
with regard to conversion costs. The equivalent units for conversion costs for the month
for the Assembly Department are ________.
A) 12,800
B) 67,200
C) 77,440
D) 80,000